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Net may be making Microsoft's strategy moot

By THE ASSOCIATED PRESS Copyright 1996 Associated Press. All rights reserved. This material may not be published, broadcast, rewritten, or redistributed. ----------------------------------------------------------------------------

NEW YORK -- The Justice Department just wants to know if Microsoft Corp. is breaking the law. [ ] But its renewed inquiry into the biggest personal computer software maker will touch bigger issues. [ ] Analysts said Friday that the investigation is likely to spotlight Microsoft's eternal problem -- how to improve its key product, which satisfies a market demand, without being seen as anticompetitive. [ ] Microsoft's longtime strategy has been to add functions to its MS-DOS and Windows operating systems that people previously added themselves with other software. [ ] That pleases customers because it reduces a PC's complexity, but angers the software developers whose innovations are absorbed. [ ] But some analysts questioned whether Microsoft's longtime strategy matters as much now because of how the Internet is changing computing, particularly in businesses. [ ] Microsoft has long benefited from a phenomenon called "technology lock-in." Customers became committed to its operating systems and designed their own programs to work with it, locking them into buying more of its operating systems and yielding what economists call "increasing returns." [ ] In the 1960s and 1970s, IBM benefited from the same phenomenon with its large computers. [ ] But the Internet was designed to work with many kinds of software and computers, which has pleased technicians in big companies where lots of different computers are used. Those companies have driven many computer firms to shed their proprietary strategies and resort to, in industry jargon, "open standards." [ ] "If the world goes to open standards, you can no longer win that (old) way ... You can still do better products but you can't win via this lock-up position," said Hubert Delaney, analyst at Gartner Group, a technology advisory firm in Stamford, Conn. [ ] "In my mind, the real issue for Microsoft is, because they're in their current position, will they keep it? I think it's clear to everyone if they're going to keep winning, they're going to have to win on a different basis." [ ] But a specialist in technology lock-in said that while the Web holds the prospect of ending the phenomenon, there's no evidence yet that it has. [ ] "It is true that if we all had general computers and general software, it would be harder to lock something in," said economist Brian Arthur of the Santa Fe Institute in Santa Fe, N.M. [ ] "But, as I see it, the Web doesn't seem to change anything. If anything, it exacerbates increasing returns," he said. "For example, if enough people are using Java, the software downloading program, then the rest of us are going to have to use Java too." [ ] The Justice Department's request for documents from Microsoft, announced by the software company on Thursday, came about a month after Netscape Communications Corp. accused Microsoft of violating a 1994 consent decree that covered the company's sales tactics with PC makers. [ ] Netscape, the leading producer of software to find and publish information on the Internet, said Microsoft is offering incentives to PC makers to not pre-install Netscape's Web browser software on their machines. [ ] Microsoft has denied the charges. The company on Thursday reiterated previous statements that Netscape is trying to deflect attention from a new Microsoft browser that is technically as good as Netscape's. [ ] Antitrust attorneys said the Justice Department's first interest is to make sure Microsoft is complying with the 1994 agreement. Under the consent decree, Microsoft agreed to stop discounting practices that encouraged PC makers to pre-install its operating programs rather than those of competitors.

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This article was published on Monday, September 23, 1996

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